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Quick Guide to Solo 401k Tax Lien Investing

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Tax liens are a popular method for Solo 401k investors to enter real estate investing. Your retirement plan can gain substantial benefits because of the low cost to enter and high interest rates. Also, tax liens hold potential to make your Solo 401k account the property owner.

During the course of the investment, the Solo 401k pays the local government the owed property taxes. In return, the Solo 401k collects interest on the investment.

With a tax lien investment, there are two possible outcomes.

If the property owner pays the interest and taxes owed, the investment is complete. However, if the property owner does not pay the taxes and owed, the holder of the lien may take ownership of the property. In the event of a default, the lienholder can foreclose on the property.

The property secures what is essentially a loan to the taxpayer.  Therefore, tax liens can be a valuable stepping-stone to grow funds in your retirement account. For some, this can even lead for purchasing more profitable assets for your self-directed retirement account.

Solo 401k tax lien investing can be a highly secure investment. That’s because tax liens are government sanctioned and officially recorded. Additionally, the liens can offer interest rates up to 15%.  Tax liens have an easily enforceable time line. This makes them attractive investments to Solo 401k accountholders.

Here are the five basic steps to tax lien investing.

Step #1: Learn the Local 401k Tax Lien Investing Process

When someone doesn’t pay their property taxes, the local government places a lien on that property. Typically, the county government oversees and manages these tax liens.  Local governments depend critically on property taxes to provide a wide range of services from schools to roads. Government agencies auction liens on overdue property taxes to collect much-needed revenue.

Solo 401k tax lien investing is no different from how any other investor buys tax liens. The process varies from state to state and sometimes county to county. Therefore, many investors learn and specialize in the process for a few specific locations. However, there are common parts of the process.

  • Tax liens are typically sold through auctions. Investors need to know the local auction process.
  • The property owner must pay the investor back the entire value of the lien plus interest. If they don’t, they could lose the property.
  • How long the property owner has to pay back taxes and interest varies by location.
  • Investment timeline is typically 6 months to 3 years.

Step #2: Narrow Your Tax Lien Search

  • Create your solo 401k tax lien investing plan
  • For many investors, this includes desired interest rate, time allowed for repayment, and property disposition if not repaid
  • If the property owner doesn’t pay the taxes and interest, your 401k may gain ownership.
  • Alternatively, in the case of a default, the property is auctioned to highest bidder.
  • Complete your research and decide on specific locations you want to invest.
  • Conduct detailed research of those specific locations. Interestingly, some auctions are public, but many are online.
  • Some auctions start below the amount of owed taxes and bid up. Others bid the interest rate down.

Step #3: Obtain a List of Liens Coming to Auction

  • Call the county treasury or tax office for a current list of properties coming up for auction. This may be on their website.
  • There may also be a list of liens that didn’t sell at the previous auction.
  • Select and research individual properties for sale.
  • Interestingly, it’s possible some properties aren’t worth the back taxes owed. You probably don’t want an industrial waste site.
  • Additional criteria to consider: Do you want residential or commercial properties? Raw land or developed?
  • In fact, whatever meets your Solo 401k tax lien investing criteria is worth considering.

Step #4: Prepare for the Auction

  • Have your finances in order. Notably, almost all auctions require full payment immediately or shortly after the auction.
  • Know what forms of payment are accepted.
  • Auctions are fast paced. Know exactly when your properties will be up for auction. Paying attention to other properties helps you learn the bidding strategies of other participants.
  • A property you didn’t think would be affordable might stop bidding below what you know it is worth.
  • Stick to your Solo 401k tax lien investing strategy.
  • Don’t over bid what you have set as an acceptable return on your investment. There will be other auctions.

Step #5: Follow Through

  • Your first requirement might be notifying the owner that you now hold the lien. Send a certified letter about how much they owe and when it must be paid.
  • Pay attention to expiration dates, foreclosure date, and any other legal requirements.
  • Stay in contact with the county tax authority. The property owner has to pay directly to the tax office.
  • The county should automatically pay you.


Have questions about tax lien investing with a retirement account? Solo 401K experts at Nabers Group will help you get your retirement funds into your control, where they belong. Contact us here.

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